Mortgage Servicing Rights

9 Months Ended

Sep. 30, 2022

Transfers and Servicing [Abstract]

Mortgage Servicing Rights

Mortgage Servicing Rights

(In Thousands)

The Company retains the right to service certain mortgage loans that it sells to secondary market investors. These mortgage servicing rights (“MSRs”) are recognized as a separate asset on the date the corresponding mortgage loan is sold. MSRs are amortized in proportion to and over the period of estimated net servicing income. These servicing rights are carried at the lower of amortized cost or fair value. Fair value is determined using an income approach with various assumptions, including expected cash flows, prepayment speeds, market discount rates, servicing costs, and other factors, and is subject to significant fluctuation as a result of actual prepayment speeds, default rates and losses differing from estimates thereof. For example, an increase in mortgage interest rates or a decrease in actual prepayment speeds may cause positive adjustments to the valuation of the Company’s MSRs.

MSRs are evaluated for impairment (or reversals of prior impairments) quarterly based upon the fair value of the rights as compared to the carrying amount. Impairment is recognized through a valuation allowance in the amount that unamortized cost exceeds fair value. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the valuation allowance may be recorded as an increase to income. Changes in valuation allowances related to servicing rights are reported in “Mortgage banking income” on the Consolidated Statements of Income.

There was no valuation adjustment on MSRs during the nine months ended September 30, 2022. During the nine months ended September 30, 2021, there was a positive valuation adjustment of $13,561 which was caused primarily by an increase in mortgage interest rates and a corresponding decrease in actual prepayment speeds.

During the third quarter of 2022, the Company sold MSRs relating to mortgage loans having an aggregate unpaid principal balance of $1,700,823 to a third party for net proceeds of $18,525, resulting in a gain of $2,960.

Changes in the Company’s MSRs were as follows: 

Balance at January 1, 2022	$	89,018
Sale of MSRs	(15,565)
Capitalization	18,052
Amortization	(9,525)
Balance at September 30, 2022	$	81,980

Data and key economic assumptions related to the Company’s MSRs are as follows as of the dates presented:

	September 30, 2022			December 31, 2021
Unpaid principal balance	$	7,406,373		$	8,728,629
Weighted-average prepayment speed (CPR)	7.08		%	10.56		%
Estimated impact of a 10% increase	$	(5,254)		$	(3,875)
Estimated impact of a 20% increase	(10,089)			(7,464)
Discount rate	10.34		%	9.82		%
Estimated impact of a 10% increase	$	(323)		$	(4,153)
Estimated impact of a 20% increase	(891)			(8,119)
Weighted-average coupon interest rate	3.43		%	3.29		%
Weighted-average servicing fee (basis points)	32.14			30.37
Weighted-average remaining maturity (in years)	8.24			6.69

The Company recorded servicing fees of $4,445 and $4,891 for the three months ended September 30, 2022 and 2021, respectively, and servicing fees of $13,868 and $13,578 for the nine months ended September 30, 2022 and 2021, respectively, all of which are included in “Mortgage banking income” in the Consolidated Statements of Income.